Commissioner of Internal Revenue v. Philtread Tire and Rubber Corp.

TWELFTH DIVISION [CA-G.R. SP No. 58229. June 4, 2003.] COMMISSIONER OF INTERNAL REVENUE , petitioner , vs . PHILTREAD TIRE AND RUBBER CORPORATION , respondents . D E C I S I O N BRAWNER , J p : Petitioner COMMISSIONER OF INTERNAL REVENUE [CIR] assails the 18 January 2000 decision 1 of the Court of Tax Appeals in CTA Case No. 5598 ordering it to refund or issue a tax credit certificate in favor of respondent PHILTREAD TIRE AND RUBBER CORPORATION [PHILTREAD] in the amount of P34,549,668.52 representing overpaid income tax for the year 1995, and the 21 March 2000 resolution 2 which denied its motion for reconsideration. These are the antecedent circumstances pertinent to this case: On 29 November 1996, respondent PHILTREAD filed its 1995 final Corporation Annual Income Tax Return 3 with the Bureau of Internal Revenue [BIR] reflecting a net loss amounting to P171,306,980.00 4 and a total refundable amount of P36,140,330.00 5 , representing prior year's excess credit of P1,471,440.00 6 and the 1995 creditable tax withheld of P34,668,890.00 7 . In the same 1995 Income Tax Return, PHILTREAD declared that the said total amount of P36,140,330.00 will be refunded. On 23 February 1998, PHILTREAD filed an amended administrative claim 8 with the Bureau of Internal Revenue for the refund of the amount of P34,668,890.00 representing the company's overpaid or excess income tax paid for the taxable year 1995. Without waiting for any action on its claim for refund, respondent PHILTREAD filed on 01 April 1998 a petition for review 9 with the Court of Tax Appeals seeking the refund of the amount of P34,668,890.00. In answer 10 to PHILTREAD's petition, CIR denied the allegations stated in the petition. It challenged PHILTREAD's petition stressing that the same does not state a cause of action as it failed to show when the alleged refundable taxes were actually paid. 11 Likewise, CIR pointed the fact that as PHILTREAD filed its claim for tax refund only on 23 February 1998, the same is still under the process of verification and investigation. To further overthrow PHILTREAD's claim for refund, CIR subsequently presented before the Court of Tax Appeals pieces of evidence showing that PHILTREAD cannot be entitled to a refund. The evidence, which consisted of three (3) different assessment notices 12 all dated 13 November 1998, showed that based on the study conducted by the CIR of PHILTREAD's 1995 book of accounts and other accounting records, the latter is liable for certain deficiency taxes which negates its entitlement to a tax refund. The assessment notices are herein described as follows: 1. Ass. No. 000059-95-98-452 For 1995 Deficiency Income Tax P384,936,221.36 2. Ass. No. 02-219-95B-98-B2-452 For 1995 Deficiency VAT 363,499,531.78 3. Ass. No. 02-219-95B-98-B2-452 For 1995 Deficiency Document 93,247.50 Stamp Tax On 18 January 2000, the Court of Tax Appeals rendered the challenged decision. Finding that PHILTREAD has satisfactorily met the requirements in order to be entitled to a tax refund, the Court of Tax Appeals granted PHILTREAD's claim for refund. Likewise, the Court of Tax Appeals opted not to dwell on the issue of whether PHILTREAD is liable for the assessed deficiency income, VAT and documentary stamp taxes as these were not the issues raised in the petition for review filed by PHILTREAD. The Court further stressed that as it only has jurisdiction over cases involving disputed assessments made by the CIR, it cannot take cognizance of the same issue as the records are bereft of any indication that the assessments issued by the CIR against PHILTREAD had already been disputed by the latter or had already become final. However, instead of the amount of P34,668,890.00 claimed by PHILTREAD, the court found that the latter is only entitled to the refund of the overpaid income tax in the amount of P34,549,668.52 as this is the sum duly supported by the certificates of withholding tax presented before the court. The decretal portion of the decision reads "WHEREFORE, in view of the foregoing, the petition for review is partially granted. Respondent is hereby ORDERED to REFUND or in the alternative to issue a tax credit certificate in favor of petitioner the sum of P34,545,668.52, representing overpaid income tax for the year 1995. SO ORDERED." 13 Moving for a reconsideration 14 of the decision, petitioner CIR invoked the case of Commissioner of Internal Revenue vs. Court of Appeals, Citytrust Banking Corporation and Court of Tax Appeals 15 where it was held that a taxpayer cannot be entitled to a tax refund when he is at the same time liable for a tax deficiency assessment for the same year. However, the motion was denied by the Court of Tax Appeals. Hence, petitioner is now before Us assailing the validity of the Court of Tax Appeals' decision via this petition for review anchored on the ground that "THE COURT OF TAX APPEALS ERRED IN GRANTING THE CLAIM FOR TAX REFUND OF THE RESPONDENT FOR THE TAXABLE YEAR 1995 DESPITE THE EXISTENCE OF DEFICIENCY TAX ASSESSMENTS AGAINST RESPONDENT COVERING THE SAME TAXABLE YEAR." 16 This case presents the sole issue of whether the subsequent assessments made by the CIR finding that PHILTREAD is liable for certain deficiency taxes bar recovery of the latter's tax refund of P34,549,668.52 representing excess creditable withholding tax paid for the taxable year 1995. The Court of Tax Appeals, in its assailed decision and resolution, remained resolute with its grant of tax refund to respondent PHILTREAD for the reason that the assessments made by the CIR during the pendency of the action have not yet been duly protested by PHILTREAD thus, it still has not acquired jurisdiction over the issue of assessments. It further believed that to rule upon the deficiency assessments at that raw stage would only result to injustice on the part of respondent PHILTREAD (petitioner below) and confusion among other taxpayers. We disagree. It has been repeatedly observed that the enforcement of tax laws and the collection of taxes are of paramount importance for the sustenance of government. As taxes are the lifeblood of the nation, it should be collected without unnecessary hindrance for the primary purpose is to generate funds for the State to finance the needs of the citizenry. However, such collection should be made in accordance with law as any arbitrariness will negate the very reason for government itself. Therefore, in every case, it becomes necessary to always reconcile the ever perennial conflict in interests between the authorities and the taxpayers for it is only through this that the real purpose of taxation, which is the promotion of the common good, may be achieved. It is for this reason that We believe and so hold that the grant of tax refund to herein respondent when there is still a pending deficiency assessment that requires evaluation might only prolong the procedure of settlement between the petitioner and the respondent. Worse, it may even cause havoc to the taxing system resulting from the inevitable institution of new proceedings in order to recover the assessed tax deficiencies. Hence, to simply allow respondent PHILTREAD to claim its tax refund despite the findings that it is liable for certain tax deficiencies, the Court of Tax Appeals should have taken more time to find equal opportunities for both the petitioner and the respondent in order to determine at once under one single case each other's claims. Moreover, being in the mature of a tax exemption, tax refund is always construed against the grantee. 17 Thus, the Court of Tax Appeals should not have simply allowed PHILTREAD to recover its tax refund for the reason that to rule upon the deficiency assessments at a raw stage would result to injustice on the part of PHILTREAD and confusion among taxpayers. 18 Further, strict procedural rules are generally frowned in proceedings before the Court of Tax Appeals. The paramount consideration remains the ascertainment of truth. 19 Thusly, the quest for orderly presentation of issues is not absolute and must not bar the court from considering undisputed facts in order to arrive at a just determination of a controversy. ASHaTc From the same perspective, We find that the remand of this case for further proceedings is only apt and proper. WHEREFORE, the assailed decision and resolution of the Court of Tax Appeals in C.T.A. Case No. 5598 is hereby SET ASIDE and the case at bench is REMANDED to the Court of Tax Appeals for further proceedings. SO ORDERED. De los Santos and Maambong, JJ . , concur. Footnotes 1. Penned by Presiding Judge Ernesto D. Acosta and concurred in by Associate Judges Ramon O. De Veyra and Amancio Q. Saga; Rollo ; pp. 1622. 2. Penned by Presiding Judge Ernesto D. Acosta and concurred in by Associate Judges Amancio Q. Saga and Ramon O. De Veyra, Rollo , pp. 2426. 3. Annex "C", Rollo , pp. 2729. 4. Ibid., Rollo , p. 27. 5. Ibid. 6. Exh. "A-19", Ibid., Rollo, p. 29. 7. Ibid. 8. See letter dated 19 February 1998 signed by C.P. Noel of the Tax Division of SGV & Co., Rollo, pp. 3032. 9. Dated 30 March 1998; Rollo, pp. 3439. 10. Dated 04 May 1998, Annex "F"; Rollo , pp. 4042. 11. Ibid., par. 5, p. 2; Rollo, p. 41. 12. Annexes "G", "G-1", "H", "H-1", "I" and "I-1"; Rollo, pp. 4348. 13. Decision of the Court of Tax Appeals at p. 6; Rollo, p. 21. 14. See Motion for Reconsideration dated February 4, 2000, Annex "J"; Rollo, pp. 4952. 15. G.R. No. 106611, July 21, 1994, 234 SCRA 348. 16. See Petition for Review at p. 5; Rollo, p. 8. 17. Davao Gulf Lumber Corporation vs. Commissioner of Internal Revenue and Court of Appeals, G.R. No. 117359, July 23, 1998. 18. See Resolution dated 21 March 2000 at p. 2; Supra. 19. BPI Family Savings Bank, Inc. vs. Court of Appeals, Court of Tax Appeals and the Commissioner of Internal Revenue, G.R. No. 122480, April 12, 2000.